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Benefits of Owning Gold

Gold bars

Gold has long been regarded as the ultimate store of value. Throughout history countless cultures have been captivated by its beauty and allure, ensuring an evolving global demand for the precious metal. Combine this demand with scarcity of supply and gold’s status as a valuable asset is both steadfast and undeniable. 

However, the many benefits of owning gold may not be widely realised, particularly among young generations. Considering this we are going to explore the myriad of advantages that come from investing in gold. 

Wealth Security

Unlike other forms of investment, gold is a good hedge against systemic risks; this is because its value is intrinsic and is not reliant on a promise to pay. While economic downturns and geopolitical instability may send the value of stocks and bonds plummeting, gold thrives during uncertainty, earning itself a reputation as a safe haven asset. 

According to the World Gold Council, gold has proven its worth in previous economic downturns, delivering positive returns in five out of the last seven recessions since 1973. Gold is also an effective way to pass on wealth from one generation to the next, as doing so is both practical and tax-efficient.

Portfolio Diversification

Negative geopolitical and macroeconomic forces such as war or recession can send shockwaves through the stock market and trigger downturns in financial investments. Conversely, gold thrives and outperforms financial investments during uncertain times. 

Throughout history, gold has shown itself to have a negative correlation with stocks, such as during the 2008-2009 financial crisis in the US and Europe. Therefore investing in gold can provide effective diversification to an investment portfolio. Over the long term, investments made in gold can smooth over portfolio returns and lessen volatility. 

Gold Is a Tangible Asset

When you buy bars of gold or gold coins and store them away securely, years later when you open the vault, you will still have bars of gold or gold coins. While some naysayers may point out that gold yields no dividends, what cannot be denied is its intrinsic value which is not reliant on any other assets. 

Additionally, gold does not rust or fade and cannot easily be faked. Gold’s value has stood the test of time, and its historical performance has demonstrated it as one of the safest investments. In our increasingly digital world, gold is a real asset you can see and touch, its value shining in your hand. 

Deflation Protection

Another benefit of owning gold is the safe haven it offers during deflation. Unlike paper currency which can suffer from purchasing power fluctuations, gold cannot be devalued at will and therefore owning gold is a way to lock in purchasing power

This is useful during deflationary periods which are typically characterised by sharp declines in domestic demand, financial sector crises, government bailouts and potential paper currency debasement. The only global occurrence of deflation in the past century we can refer to is the Great Depression of the 1930s. During that time investors looked away from the stock market and sought to invest in the safety of gold. 

Most countries were trading gold on the gold standard, or fixed price rate, which doesn’t allow analysis of the effects on gold price, however, studies demonstrate that there was significant pent-up demand for gold following the deflationary years.

Gold is Internationally Recognised

Not only pleasing to the eye, gold has a variety of practical uses too. Across the world, gold is used in jewellery, medicine, technology and even space exploration. Throughout time this precious metal has been bought and sold in its many forms and today countries such as China and India are experiencing significant demand for investment bars and coins as well as gold jewellery. 

Gold is a scarce and finite commodity; factors which serve to increase its global liquidity. Today, the world’s central banks own the largest gold reserves and they are accumulating more at a rate not seen for over 50 years. In fact, according to a World Gold Council survey, 71% of global banks are expected to increase their gold holdings over the next year. It seems central banks are seeking security in gold, and individual investors looking to protect their assets may benefit from following suit. 

Hedge Against Inflation

During times of inflation, the value of fiat currency is eroded as its purchasing power decreases. Contrary to this, the cost of every ounce of gold in that same currency rises as a result and gold investors are compensated with more currency for each ounce of gold. Over time, analysts have demonstrated that gold is a good hedge against inflation. Furthermore, gold investment protects against the extreme case of hyperinflation and complete currency collapse. Consequently, adding gold to a portfolio acts as insurance for other investments.

All things considered, when looking to preserve wealth, the benefits of owning gold are abundant. Gold adds diversification to a portfolio, acts as a hedge against inflation, and provides a safe haven during deflationary periods and times of geopolitical unrest such as we are currently experiencing. Furthermore, worldwide demand makes gold easily bought and sold. While other types of investments may thrive under economic certainty, gold is here to weather the storm of the good and the bad times; an asset that will never lose its shine.

07 Nov 2023 | Categories: Gold, Coins

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